7 things you should know about October’18 equity mutual fund inflows

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Retail investors are still keeping their faith in equity MFs. The panic button is not being pressed. These are the two big takeaways from the October 2018 mutual fund investment data disclosed by industry body Association of Mutual Funds of India (AMFI). At a time when politics is keeping everybody on their toes and the macroeconomic situation seems shaky, mutual fund AMC CEOs must be heaving a sigh of big relief that retail investors are still buying mutual funds in the form of Systematic Investment Plans (SIPs). RupeeIQ presents seven important things you should know about October equity mutual fund investments.

1. New fund offer sales

New fund offerings are a good indicator of investor sentiment. New equity MF sales in October 2018 were at Rs 2,609 crore for four open ended schemes. This indicates an average of Rs 652 crore per scheme. That’s much better than Rs 2,822 crore for five schemes in September 2018, indicating an average mop-up of Rs 560 crore odd. New sales are tougher any day. New schemes in October this year were: Axis Growth Opportunities Fund, HSBC Equity Hybrid Fund, ICICI Prudential Manufacture in India Fund and Invesco India Smallcap Fund.

2. Existing scheme sales

With 326 open-ended equity schemes, the existing sales also show how existing and also new investors are looking at equity products. Its like a heat-map. Existing products have a track record, so they are easier to sell than green-horns. Existing equity schemes garnered Rs 18,663 crore worth sales in October 2018. This compares favourably to Rs 18,045 crore in September. Do note that in October 2017, existing equity scheme sales were in excess of Rs 27,000 crore (those were pre-LTCG tax times!).

4. SIP by sip

The Systematic Investment Plans has become an important contributor to equity MF total sales. As per AMFI, October 2018 saw a lifetime high investment of Rs 7,985 crore through SIPs. About 90% of this money (or Rs 7,200 crore) would be for equity MFs. So, roughly 39% of existing equity scheme sales is via SIPs. With an average ticket size of Rs 3,300 per SIP account, Indian investors are continuing to allocate through SIPs. The rest of the money is via lump sum route. A year back i.e. October 2017, SIP book was Rs 5,621 crore and assuming 90% was equity, that would be equity SIP book of Rs 5,000 crore. This would be less than 20% of existing scheme sales, which shows how SIPs are becoming a preferred route.

5. Redemptions

To assume that all investors invest is not right. Some investors sell too. In fact, there could be cases where investors make fresh deployments while they take out money off the table. AMFI does not provide such granular data. But what it does provide is equity MF redemptions. So, in October 2018 about Rs 9,850 crore worth equity MFs were sold. This is not a small number. Look at it, this is nearly Rs 10,000 crore of units sold. This means MFs must have sold such units to give investors that money. The Rs 9,850 crore number in October 2018 is a little less than Rs 11,221 crore in September 2018. Redemptions are an indicator of fear-factor among investors. Redemptions as % of total equity MF sales is still 46%. Do bear in mind that about 10% of redemptions are automatic since they are from closed-ended schemes that matured.

6. Net inflows

Subtracting this Rs 9,850 crore redemptions number from total equity sales of Rs 21,272 crore (Rs 2,609 crore new sales + Rs 18,663 crore existing sales), gives us the net investments/inflows from equity MFs: Rs 11,422 crore. The net inflow number is, we believe, at a 8-month high. That’s pretty impressive if we focus on the 8-month high part. Since equity MF SIPs are contributing Rs 7,200 crore and people don’t sell soon after using SIP, the non-SIP net inflow number is close to Rs 4,000 crore. In April to October 2018 (7 months), the net inflow in equity MFs is Rs 67,867 crore compared to Rs 66,393 crore in April-October of 2017. It is good to see equity MFs still getting more money as net inflows because this money is invested in markets and that provides a cushion against selling by foreigners.

7. Equity AUM

Despite robust equity MF inflows, the assets under management number in October 2018 was lower than September 2018. While markets fell 6.4% in September, in October 2018 too markets corrected by another 5%. Consequently, equity AUM stood at Rs 6.59 lakh crore at the end of October compared to Rs 6.63 lakh crore in September. Equity AUM now is 30% of the total industry’s assets of Rs 22.23 lakh crore. Fund-houses prefer equity AUM, because they generate more in investment management fees and also they stick around for a much longer period of time than debt etc.